Setting up a Global Capability Centre (GCC) in India — Tax, FEMA & structuring

India has emerged as one of the world’s leading destinations for Global Capability Centres (GCCs), offering multinational groups access to skilled professionals, technology talent, cost efficiencies and a mature business ecosystem. A GCC can perform technology, finance, accounting, analytics, research, human resources, procurement, engineering and other strategic functions for its overseas group entities.

However, setting up a GCC is not simply an incorporation exercise. The group must carefully evaluate the tax, FEMA, transfer pricing, corporate and operational structure before commencing activities.

🏢 What is a Global Capability Centre?

A GCC is generally an Indian entity or establishment created by a multinational group to provide services or perform business functions for its overseas group companies.

Depending on the group’s requirements, the Indian operation may be structured as a wholly owned subsidiary, private limited company, branch office, liaison office or another permitted structure. For a long-term operating centre, an Indian subsidiary is often considered because it provides a separate legal identity and greater flexibility in conducting business.

The appropriate structure should be determined after considering the nature of activities, funding requirements, liability, repatriation, taxation and the extent of decision-making authority in India.

💰 Tax Considerations for a GCC

The first major consideration is Indian corporate taxation.

An Indian GCC incorporated as a company will generally be subject to Indian income tax on its taxable profits. The applicable tax regime should be evaluated at the time of incorporation because the effective tax cost can vary depending on the regime selected and the nature of income.

For AY 2026–27, the Income Tax Department indicates that eligible domestic companies may have access to concessional taxation regimes, including the section 115BAA regime at 22%, subject to applicable conditions.

A GCC should therefore undertake a tax modelling exercise before finalising its structure rather than selecting a tax regime only after operations begin.

🌍 Transfer Pricing — A Critical GCC Issue

Most GCCs provide services to their overseas Associated Enterprises (AEs). This creates international transactions and makes transfer pricing one of the most important areas of compliance.

For example, an Indian GCC may provide software development, accounting support, research, data analytics or back-office services to its foreign parent. The remuneration received should generally reflect the functions performed, assets employed and risks assumed by the Indian entity.

The group should establish an appropriate transfer pricing model and document the basis for determining the arm’s-length remuneration.

Common approaches for service-oriented GCCs may include a cost-plus model or transactional net margin method (TNMM), depending on the facts.

Advance Pricing Agreements (APAs) can also provide greater certainty for eligible international transactions. The Income Tax Department provides a formal APA framework, including pre-filing consultation and annual compliance requirements.

💵 FEMA and Foreign Investment

Where the GCC is funded by a foreign parent, India’s foreign exchange regulations become relevant.

Foreign investment into an Indian company must be examined under the Foreign Exchange Management Act (FEMA) and the applicable foreign investment framework. The investor must determine whether the proposed business activity falls under the automatic route or requires government approval and whether any sector-specific conditions apply.

The company must also ensure proper reporting of foreign investment, issue of shares or other permitted instruments, receipt of consideration through permitted banking channels and compliance with applicable RBI reporting requirements.

Therefore, FEMA compliance should be planned alongside incorporation and funding rather than treated as a post-incorporation formality.

🔄 Cross-Border Payments and Withholding Tax

A GCC may make or receive payments for services, technology, software, intellectual property, management support, reimbursement of expenses and other arrangements with overseas group entities.

Each payment should be examined from an Indian withholding-tax and treaty perspective.

Where payments are made to non-residents, the Indian entity should determine whether the payment is taxable in India and whether withholding obligations arise. Form 15CA and, where applicable, Form 15CB requirements should also be considered for qualifying remittances.

🧾 GST Implications

GCC activities can also have significant GST implications.

Where the Indian entity provides services to an overseas group company, the transaction should be examined against the conditions for export of services. If the conditions are satisfied, the services may qualify as exports and potentially be supplied under a Letter of Undertaking (LUT), subject to applicable requirements.

However, the GST position should be determined transaction-by-transaction. Recharge arrangements, employee secondments, cost allocations, shared services and reimbursement models can create different GST consequences.

🏗️ Choosing the Right GCC Structure

The most effective GCC structure depends on the group’s objectives.

A wholly owned Indian subsidiary may be suitable where the group wants a dedicated operating centre with its own employees, contracts and financial statements.

A branch office may be considered where the foreign company wants to operate directly in India, subject to the applicable regulatory conditions.

A liaison office has a much narrower permitted role and generally cannot be treated as a normal revenue-generating operating centre.

The structure should therefore be selected after evaluating the proposed activities rather than simply replicating the structure used by another multinational.

📋 Compliance Framework

A GCC should establish its compliance framework from day one. This can include corporate filings, income-tax return filing, transfer pricing documentation, GST returns, payroll and employment compliances, FEMA reporting, withholding-tax compliance and accounting controls.

The Indian tax framework has also transitioned to the Income Tax Act, 2025, which came into effect from 1 April 2026, replacing the Income Tax Act, 1961 subject to transitional provisions. GCCs commencing operations in the current period should therefore ensure that their tax processes are aligned with the new framework.

🚀 Conclusion

Setting up a GCC in India can provide substantial strategic and operational advantages, but the success of the structure depends on getting the regulatory framework right from the beginning.

The ideal approach is to evaluate corporate structure, FEMA, foreign investment, corporate taxation, transfer pricing, GST, withholding tax and cross-border agreements together.

A well-designed GCC structure can provide tax efficiency, regulatory certainty and operational scalability while reducing the risk of future disputes with Indian tax and regulatory authorities.

 

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